Reality Check for Emerging Market Debt Crisis

(Last Updated On: September 21, 2018)

Here was a question about the current emerging market crisis coming out of Argentina and Turkey. There also seems to be an unknown crisis happening with India which is not getting a lot of news. The rupee was at a low recently.

Now the question

QUESTION: Hello Martin … I follow emerging markets closely and one thing I note is that the size of the sovereign forex-denominated debt burdens are quite small relative to GDP except in the case of Argentina (48%). Everybody else, including Turkey and Indonesia) is 11% or less. How can you have a debt crisis if everybody is clearly able to service their debts? That’s what confuses me. Today the Bloomberg EM dollar debt index is at 6.05% — whereas in 1998 it was 17%! That is saying the risk is still fairly subdued no?

Here was a question about the current emerging market crisis coming out of Argentina and Turkey. There also seems to be an unknown crisis happening with India which is not getting a lot of news. The rupee was at a low recently.

Now the question

QUESTION: Hello Martin … I follow emerging markets closely and one thing I note is that the size of the sovereign forex-denominated debt burdens are quite small relative to GDP except in the case of Argentina (48%). Everybody else, including Turkey and Indonesia) is 11% or less. How can you have a debt crisis if everybody is clearly able to service their debts? That’s what confuses me. Today the Bloomberg EM dollar debt index is at 6.05% — whereas in 1998 it was 17%! That is saying the risk is still fairly subdued no?